Regulation and the Role of Government in SHI and VHI Dr. Pablo Gottret Senior Economist

Regulation and the Role of Government in SHI and VHI

Dr. Pablo Gottret

Senior Economist

Health, Nutrition and Population

April 2004

The Millennium Development Goals (MDGs)

In the 1990s

The Global Community Made a Pledge to Help

Developing Countries Achieve the MDGs

Extreme Poverty: •Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day.

•Halve, between 1990 and 2015, the proportion of people who suffer from hunger.

Safe Water & Sanitation:

•Halve by 2015 the proportion of people without sustainable access to safe drinking water.

•By 2020, achieve significant improvement in the proportion of people with access to sanitation.

Child & Maternal Health: •Reduce by two thirds, between 1990 and 2015, the under-five mortality rate.

•Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio.

Primary & Girls' Education: •By 2015, boys and girls everywhere complete a full course of primary schooling.

•Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015.

Communicable Diseases By 2015, halt and begin to reverse the spread of:

•HIV/AIDS•Malaria & •Other major diseases.

Millennium Development Goals(MDG)

Reduce child mortality

Under Five Mortality (per 1,000 live births)

7886

29

0

20

40

60

80

100

1990 19992015

Reduce Child Mortality Improve Maternal Health

Births attended by skilled health personnel(% total)

51

90

47

0

20

40

60

80

100

1988 2015

Millennium Development Goals

Global Aggregates

Children of Poor FamiliesAre Worse Off

Under-five mortality

0

50

100

150

200

250

Bang

lade

sh

Beni

n

Boliv

ia

Braz

il

Burk

ina

Faso

Poorest20%

Richest20%

Stunting prevalence (%)

0

10

20

30

40

50

60

Bang

lade

sh

Beni

n

Boliv

ia

Braz

il

Burk

ina

Faso

Poorest20%

Richest20%

Financing Policies withGood Governance andLocal Capacity

Allow Countries to Leverage Outcomes

Outcomes

Financing

Governance

Capacity

Indi

vidu

als

Government

Providers

Loca

l Gov

.Ben

efits

When Good Policies andCapacity are MissingThings Break Down:

• Policy• Information/M&E• Capacity• Household Behaviors• Institutional Incentives• Financing

Money Alone

Weak Policies & Corruption

Lack of Community Involvement

Problems with Supply

Lack of Demand Outcomes

Outcomes

• Global GDP– US$31 Trillion (3 - 4 percent Growth Rate)

• Global Health Spending– US$2.6 Trillion (8 percent of Global GDP)

• Spending In Developing Countries– US$280 Billion (11 percent of total spending)

Let us Look at a Few Numbers

Only 11 Percent of Global Spending for90 Percent of the World’s Population

Global Health Expenditure 2000 = US$2.6 Trillion

Africa 0.4%

Middle East and N Africa 1.5%

Europe 2.4%

Americas 3.2

Asia 3.5%

Developed Countries 88.9%

Revenue Pooling Resource AllocationCollection or Purchasing (RAP)

What are Good Health Financing Policies?P

riva

teP

ub

lic

Taxes

Public Charges

Mandates

Grants

Loans

PrivateInsurance

Communities

Out-of-Pocket

PublicProviders

PrivateProviders

Service Provision

GovernmentAgency

Social Insurance orSickness Funds

Private InsuranceOrganizations

Employers

IndividualsAnd Households

• Revenue Collection – Difficulties reaching rural & informal sectors– Weak Taxation Capacity

• Pooling– Incomplete and fragmented revenue pool– Incomplete and fragmented sharing of risks

• Resource Allocation and Purchasing– Public subsidies often have pro-rich bias– The poor often bypass formal sector providers

Understanding Rich Poor Differences in Health Care Financing

Low-Income Countries HaveWeak Capacity to Raise Public Revenues

To

tal G

ove

rnm

ent

Rev

enu

es a

s %

GD

P The tax structure in many

low-income countries is often regressive.

0

20

40

60

80

100

Per capita GDP (Log scale)

10,000 100,0001,000100

Governments in many countries often raise less than 20% of GDP in public revenues; and

What do We Mean by Pooling?

Age

Res

ourc

e en

dow

men

t

Health risk

Res

ourc

e en

dow

men

t

Cross-subsidy from low-risk to high-risk

Low risk

High risk

$

$

Income

Res

ourc

e en

dow

men

t

Cross-subsidy fromrich to poor

PoorRich

$

$

Cross subsidy from productive to non-productive

part of the life cycle

Productive

Non-produc

tive

$

$

Low Income Countries HaveLess Pooling of Revenues

Share of world’s 1.3 billion living onless than US$1 day indicated by

size of blue bubbles

Low-Income Countries Have Pro-Rich Bias of Public Subsidies

0

5

10

15

20

25

30

Poorest Quintile Richest Quintile

AfricaEast EuropeAsiaS

ub

sid

ies

(%)

Go

vern

men

t h

ealt

h e

xpen

dit

ure

)

What is a Typical Financing Scheme in a Developing Country

• Segmented Financing System– Limited public health and concentration of expenditures in supply side

subsidies to curative care (large public hospitals)

– Social Insurance with low coverage usually concentrated in middle and upper class urban population (salaried workers)

– Communities have responded with community risk pooling mechanisms.

– Limited supplementary insurance for those who can afford it • There is no package to supplement

• Unclear rules of the game

• Little development of Capital markets and prohibition to invest abroad

• Mandatory requirements to be a fully complying insurance company in the country.

– Large out of pocket payments for curative care, usually paid by lower income families.

Czech Republic

Uruguay

Oman

Hungary Argentina

Saudi Arabia

St. Kitts And Nevis

Slovak Republic

Estonia Poland

Mauritius

South Africa

Chile

Croatia

Malaysia

Mexico

Costa Rica Botswana

Latvia Brazil

Macedonia, Fyr

Thailand

Tunisia Panama

Namibia Turkey

Tonga Bulgaria

Gabon

Colombia

Dominica

Dominican Republic

Algeria

Samoa

Fi

Belarus

Peru

El Salvador

Paraguay

Lebanon

Guatemala

J ordan

Philippines China

J amaica

Egypt, Arab Rep.

Turkmenistan

Morocco Ecuador Vanuatu

Indonesia

Zimbabwe

Honduras

Papua New Guinea

Bolivia

Armenia

Lesotho

Vietnam

Djibouti Guinea

Georgia

Ghana

Pakistan

Solomon Islands

Sudan

Gambia, The

Haiti Cameroon

Mongolia

Cote D'Ivoire

Kyrgyz Republic

Togo

Moldova

Uganda

Rwanda

Burkina Faso

Chad

Nigeria

Eritrea

Mali

Zambia

Malawi Burundi

0

1

2

3

4

5

6

7

8

0 2,000

4,000 6,000 8,000 10,000 12,000 14,000

Per capita income PPP PPPPPP PPP

Dom

esti

call

y F

inan

ced

Gov

ernm

ent

Hea

lth

Spe

ndin

g as

% o

f G

DP

Domestic Financed Gov. Expenditures (Central Gv. + SHI) varies across countries for any level of GDP

Private Expenditure in Health is More Important, Private Expenditure in Health is More Important, specially in Low Income Settingsspecially in Low Income Settings

Source: WDI, 2002

Notes: Regional aggregates exclude high-income countries (GNI per capita > $9,206); MENA health expenditures include Saudi Arabia and Oman, which are both considered upper middle-income countries according to World Bank specifications.

Region/income groupPopulation,

millions (2002)

Per capita GDP (2002

$US)

Health expenditures

per capita, (2000)

Public health expenditures

(% of total health exp.,

2000)Aid as a % of GNI (2001)

East Asia & Pacific 1,838 980 44 38 0.5

Europe & Central Asia 476 2,384 108 73 1

Latin America & Caribbean 527 3,176 262 47 0.3

Middle East & North Africa 306 2,265 171 62 0.7

South Asia 1,401 467 21 20 1

Sub-Saharan Africa 688 463 29 43 4.6

World 6,201 5,201 482 58 0.2

High income 965 26,942 2735 59 N/A

Middle income 2,742 1,870 115 51 0.4

Low income 2,495 453 21 25 2.4

Some Illustrative Numbers (in %, data for year 2001)

India Bolivia Rwanda Thailand

THE / GDP 5.1 5.3 5.5 3.7Public H. Exp. / THE 17.9 66.3 55.5 57.1Social H. Exp THE N.A. 35.0 0.4 14.9Coverage / Population 1.0 21.0 1.4 N.A.Private H. Exp / THE 82.1 33.7 44.5 42.9OOP / Private H. Exp 99.0 82.0 N.A. 85.0

THE = Total Health ExpenditureOOP = Out of Pocket ExpendituresN.A. = Not AvailableSource: WHO

MODELS – FLOW OF FUNDS CLASSIC FRAGMENTED MODEL of SHI

Gral. Gov. Indiv./firms1

MOH

Indiv./Firms2

SIF 1 SIF 2

P3 Pmoh P2 Psif1 Psif2

EXAMPLESMexico, Bolivia, Peru,Ecuador

Typical Problems:Inefficiency, duplication of infrastructure, duplication ofCoverage, low coverage breadth MOH, low coverage depth,Equity, supply side subsidies, subsidies to middle/upper class

MODELS – FLOW OF FUNDS SINGLE PAYER

Gral. Gov Indiv./ Firms

Social Insurance Fund

P 1 P 2 P 3 P4

EXAMPLES:Costa Rica, Canada, Taiwan, Korea,Estonia, Hungary

TYPICAL PROBLEMS:Cost containment, deficits, transparency/accountability, possible lack of competition

MODELS – FLOW OF FUNDS Managed Care -- Argentina

Indiv. /Firms

Collector

OS 1 OS 2 OS 3

P3 P5P1 P2 P3 P4 P2 P3

SolidarityFund

High ComplexityFund

PROBLEMS:Risk selection, double coverage, transparency/accountability, supervision/control, high administrative costs

MODELS – FLOW OF FUNDS Managed Care -- Colombia

Gral. Gov. Indiv./Firms

Social Ins. Fund

EPS 1 EPS 2 ARS 1 ARS 2

P5 P3P1 P4 P2 P1 P3 P2 P2

PROBLEMS:Administrative costs, targeting, equity, risk selection.

MODELS – FLOW OF FUNDS Managed Care -- Chile

Indiv./ FirmsHigher Income

FONASA ISAPRE 1

P2 P5 P4 P2 P3 P4

ISAPRE 2 ISAPRE 3

P3 P1 P5P1

Indiv./ FirmsLower Income

PROBLEMS:Equity, risk selection, perverse incentives from opting out, high administrative costs, subsidies to upper income

RISK TRANSFERS

Regulation will Vary Depending on Assumed Risk Among Others

• Entitlement, Enrollment and portability

• Degree of Mobility of insured population

• Minimum entry requirements to industry

• Solvency margins and prudential regulation (reserves, investment of reserves, financial disclosure actuarial studies, corporate governance, others)

• Consumer protection and disclosure (complaints and periodic and public information requirements)

• Exit mechanisms (intervention, liquidation, others)

• Regulation related to market failures (adverse selection, risk selection and moral hazard)

Will More Money Alone Help Achieve the MDG?

• There are estimates that to achieve MDG there is a need of additional funding for health expenditures in the range of US$ 30 to 80 billion.

• It is unlikely that this money will come from donor financing alone and if it did it would be non-sustainable.

• Donor financing must leverage structural change.

What is it Needed in Financing to Achieve MDG?

• A sustainable Financing Strategy per Country• Understanding Health as a System• Clear and complementary roles for Public Sector,

Social Insurance, Community Risk Pooling Mechanisms, Private Insurance and Out of Pocket Payments.

• Clear and sustaining rules of the game all across.

PublicSector

PrivateSector

NGOsand

InternationalPartners

Individualsand

Households

No Single Actor Can do it Alone

Insurers

BetterFinancial

ProtectionIn Health